Like SIPC Protection? Set Your IB Sweep To Get It.

I would agree with you if the banks the Fed saved were banks in the traditional sense. But they weren't. I think your point is pretty much baseless.

 

In a prior post I already commended you for coming up with the citation. But as for your call you must be the only one ever to call a Federal agency and get the right answer. The calls to agencies mean little (to my way of thinking) until you come up with the hard evidence ... which you now have. You have done us all a service and I buy in lock, stock and barrel. I have already taken action and ordered an ACH transfer to keep less at IB and more in a commercial bank.

The real question now is why has IB lead us to believe we were certainly covered when they obviously have known for some time that this benefit they have offered through their Universal Account may not only not exist but in certain circumstances leave you BOTH without SIPC and not part of the segregation pool. If someone ended up there and a firm went down they would be an unsecured creditor and stand on an equal footing (pari parsu) with everyone else in the worst of all positions to be in in a bankruptcy. It would be a horror.

I just wish the numbers were bigger. And yeah, I'm probably a bit of a tool ... lol.

 

Nothing is really clear until some event comes up in the future, but either way in case this nightmare you described happened, the court would just have to decide if the money was in SIPC or in segregated futures, you just can't stand in between, like some purgatory.
Anyway, i just noticed TD Ameritrade does the same thing, sweeps money out of futures account to SIPC account. Probably Schwabb does the same, as every broker will ultimately do after MF Global, it's just the natural thing to do - call it marketing or whatever you want - but these days that's what people want, just like they flocked into FDIC insurance in 08.

 

My problem is that the SIPC won’t give you a completely “right” or “straight” answer. In my opinion, that is the whole problem. With insurance you should know exactly what it covers and when. We basically now know that segregation is of not much help or protection, that the SIPC won’t tell us for sure if we are covered or not, and we don’t know whether or not sweeps back and forth hurt whatever protection segregation may have given us.

Summing that up, we don’t have anything that gives us a high level of confidence. We definitely need clarification and most likely a new FDIC like protection for securities and commodities accounts. Until then keep as little as possible in your futures accounts, and know that sweeps could (however unlikely) lead to losing whatever protection you thought you might have had.

 

SIPC is never going to give legal opinions over the phone that go beyond previously published formal guidance. They are very likely to hedge on *any* question about whether a specific account is covered based on a description of how it was funded and traded.

However, they have said nothing anywhere that specifically warns against the sweep practice that is in widespread use by firms in the industry and advertised as offering SIPC coverage. I agree with Swan Noir that this amounts to countenancing the practice.

But to buttress your situation further, do the occasional security trade. Then the funds in the securities account *are* awaiting investment in securities. They would be very hard pressed to deny coverage to accounts containing some securities trades.

If they ever were to try to deny coverage, which I doubt, the easy line to draw would be to deny coverage to accounts containing *no* securities trades at all.

If they later tried to say x trades were not enough but y trades were enough, it would be very likely to be thrown out by the courts as too subjective.